Porsche Case Study Essay

694 Words May 2nd, 2011 3 Pages
1. Which do you believe is most important for sustaining the sale of the new Carrera model, maintaining a profit margin or maintaining the U.S. dollar price?

To answer this question, the price elasticity of demand must be known for the Porsche Carrera. If the car is relatively inelastic, the company can count on high exchange rate pass-through. Meaning, that the Porsche may keep the profit margin by increasing the price of the car as the U.S. dollar weakens in relationship to the Euro.
If the car has elastic demand, meaning that price elasticity is less than 1, the car maker will have to reduce margin in order to keep price constant in order to achieve sales.
We suspect that Porsche cars are relatively price inelastic because they
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may not be in line with the Brand strategy which relies upon the strong European identity of Porsche.
Another option for Porsche to minimize risk due to currency fluctuations is the use of currency derivatives to hedge risk. This would not damage the brand image. Appendix – Pass Through Analysis for the 911 Carrera 4S Cabriolet, 2003
PRICE COMPONENT APR MAY JUN NA
Launch
JULY AUG SEP OCT NOV DEC
FULL COST € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696
MARGIN (@15%) € 11,204 € 11,204 € 11,204 € 11,204 € 11,204 € 11,204 € 11,204 € 11,204 € 11,204
EUROPEAN PRICE € 85,900 € 85,900 € 85,900 € 85,900 € 85,900 € 85,900 € 85,900 € 85,900 € 85,900
SPOT RATE ($/€) 1.0862 1.1565 1.1676 1.1362 1.1286 1.1267 1.1714 1.1710 1.2298
BASE PRICE IN US$ IF
100% PASS-THROUGH $93,305 $99,343 $100,297 $97,600 $96,947 $96,784 $100,623 $100,589 $105,640 TARGET PRICE IN US$ $93,200 $93,200 $93,200 $93,200 $93,200 $93,200 $93,200 $93,200 $93,200
SPOT RATE ($/€) 1.0862 1.1565 1.1676 1.1362 1.1286 1.1267 1.1714 1.1710 1.2298
PRICE REC IN EUROS € 85,803 € 80,588 € 79,822 € 82,027 € 82,580 € 82,719 € 79,563 € 79,590 € 75,785
LESS FULL COST € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696 € 74,696
RESIDUAL MARGIN € 11,107 € 5,892 € 5,126 € 7,331 € 7,884 € 8,023 € 4,867 € 4,894 € 1,089
MARGIN 14.87% 7.89% 6.86% 9.82% 10.55% 10.74% 6.52% 6.55% 1.46% P$/P€ 1.086205 1.156496

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